November 14, 2013

Three Keys to the Obamacare Tweaks Announced Thursday

President Obama on Thursday announced a new administration initiative designed to help that small portion of Americans whose insurers are cancelling existing policies.

It’s not clear how much impact it will actually have, which means many (and probably most) of the people losing coverage aren’t likely to get those same policies back. But it appears the plan does minimal damage to the rest of Obamacare, which means the millions of people about to get insurance for the first time—or get cheaper, more comprehensive coverage than they had before—will still get those benefits.

These facts are related. It's difficult to help the relatively small group of people who feel hurt by the law without hurting the larger group being helped. This announcement is an effort to offer some relief, while leaving open the possibility of future changes consistent with the law's core goals.

"Among potential fixes, this one is towards the modest end of the spectrum," says Larry Levitt, senior vice president of the Kaiser Family Foundation. "It gives current enrollees more time to transition to a new plan without significant disruption to the market. It also leaves quite a bit of discretion to insurers, which could both limit its impact and its effect on premiums in the future."

I may have more to say about the proposal once experts and various stakeholders have had more times to study it. But, for now, here are the key elements:

1) Maybe, Possibly Letting Some Additional People Keep Their Plans. Insurers already had the right to extend existing insurance plans, for up to one year, even if those plans did not comply with Obamacare regulations. But they had to do so by the end of December—even if an insurance plan was scheduled to expire later next year. Under the new guidance the Administration is issuing on Thursday, plans can renew expiring plans at any time in calendar year 2014. Not all plans expire on December 31. A decent-sized group expires in July, for example. This is a chance for insurers to give folks on those plans an extra year before adjusting to the new insurance market.

The unknown here is whether insurers will revisit and renew policies they already cancelled. Insurance industry officials I’ve consulted don’t seem terribly interested in doing that: It turns out to be way more complicated than most people realize. Restarting a cancelled plan would take time and work, at a time when carriers are trying to restructure their options to maximize profits given the new consumers seeking coverage. If insurers thought renewing a policy was a worthwhile effort, chances are good they would have taken advantage of the existing authority to do so.

Still, this announcement puts some rhetorical pressure on insurers to reconsider cancellations. Now that the president has told the public he's giving insurers a chance to renew policies, consumers might be upset if they don't get the offer. Thursday's announcement also sends a clear signal to state regulators, who in some cases have a lot of authority and/or influence with carriers.

In Washington, insurance industry trade representatives are angry about this. They feel like the administration is scapegoating them for changes they made in response to the new law. Of course, some would argue insurers deserve to take some blame—at least more than they are taking now—because plenty of carriers are taking advantage of Obamacare's timing to cull their rolls for maximum profit.

2) Stronger Shock Absorbers for Insurers. Most likely the number of people who stay in current plans won’t change radically because of this new announcement—in part, again, because plenty of insurers aren’t going to rescind those cancellations. But nobody really knows. And it’s certainly possible the number could be large enough to confound insurance company predictions of who will sign up for the new, Obamacare-complaint plans. Since insurers can’t now adjust insurance premiums for 2014—those rates were set long ago, based on expectations of who would enroll—it’s possible insurers would incur losses.

Obamacare includes a series of shock absorbers designed to protect insurers from precisely this possibility—since, among other things, insurers who lose money in 2014 will charge higher premiums in 2015. One of them, known as “risk corridors,” essentially reimburses plans for half of significant losses. (This paper from Milliman can explain how they work.) In its official letter to state insurance commissioners, HHS says it will "explore ways to modify the risk corridor program final rules to provide additional assistance." What might that mean? One possibility would be allowing insurers to get extra money if they incur extra losses because of this change.

In effect, risk corridors are an insurance policy for the insurers—and, ultimately, the people who pay their premiums. The administration is signalling it will strengthen that policy, if necessary.

3) Explaining Stuff to Consumers. Have you seen a cancellation letter? Many of them are scary and they don’t provide a lot of context—about why the insurer won’t renew the policy or what options the consumer now has.

Under the new guidance, insurers who offer beneficiaries a chance to stay on old plans must make clear how those plans compare to the new ones available on the Obamacare marketplaces. In other words, insurers must identify the gaps in their current coverage—which might be anything from rehabilitative services to prescription drugs to maternity care—and point out that policies in the new marketplaces cover those things. The letters will have to make clear some people losing policies will become eligible for Medicaid or for tax credits towards the cost of a new private policy.

At least some of the cancellation letters I’ve seen do mention these options, albeit without a lot of fanfare. The hope was that most people would learn these things on their own, quickly, by going online to shop for new policies. But particularly with the problems plaguing both the federal and several state websites, many people have no idea what's availble through Obamacare. They think they have to accept whatever replacement the insurer is offering, even though Obamacare policies might be more comprehensive, cheaper, or some combination of the two.

* * *

Obama said one other, very critical thing, though I doubt it will get attention. He said he is willing to work with Congress on fixing and improving the law—and that he’ll listen to any proposals that don’t undermine the program’s core goals of making comprehensive coverage available to more people. He’s said it many times before, which is why nobody is going to notice. But it’s actually the best response of all.

Stories of people losing coverage are everywhere. The majority of them are not what they seem at first blush—frequently they are stories of people who had lousy coverage before, or now will save money because they are eligible for financial assistance. But some people really will end up spending more money for coverage that is no better than their existing policies. Some people will end up with coverage that is actually worse—they might have higher deductibles, for example, or be stuck with narrow provider networks that leave out longtime doctors.

These people tend to be healthy and relatively affluent—they are the only ones who can get these policies and actually pay for them. But that doesn’t’ mean they can easily absorb premium increases of a few thousand dollars a year.

There’s a case for helping these people, in part because the change came as such a shock. Whether or not the president intended to mislead them, he didn't warn them about this (and neither did anybody else). But the quick, easy fixes circulating on Capitol Hill would let these people keep existing policies by threatening the law’s reforms. They would, for example, allow insurers to keep blocking out people with pre-existing conditions, or mess up the risk pool in ways that could make premiums much higher for 2015. It’s possible to imagine solutions that would strike some kind of acceptable balance, but they would take some negotiation and probably a bit of money.

These are the kind of modifications that large legislation routinely needs and Obama has made clear he’s willing to discuss them. But he’ll need a willing partner—one willing, at the very least, to acknowledge the benefits that the law provides. Republicans could be the partner, but they've never shown such interest.